State budget surplus greater than expected

Annie Linskey, The Baltimore Sun

Maryland finished the most recent budget year with nearly $1 billion in unspent funds, a surplus that was more than 50 percent higher than expected, mostly due to stronger-than-anticipated income tax receipts, officials said Thursday.

"It is encouraging news," Gov. Martin O'Malley told The Baltimore Sun. He said the increase in revenues was "a sign of the recovery" that is "welcome."

It was a rare bit of good budget news in a state that has consistently come in hundreds of millions under revenue estimates used to make long-term deficit projections.

O'Malley expressed optimism that the new figures would foreshadow a smaller deficit going forward. The budget gap is currently estimated to be about $1 billion.

State analysts will readjust their long-term revenue and spending estimates later this month to give the General Assembly a better sense of the continuing gap.

Maryland budget writers had expected to close the fiscal year with $641 in excess funds. They had planned to use nearly all of that money — $590 million — to balance the current budget.

The new data shows the state has $344 million more in surplus funds than officials had anticipated.

Much of the unexpected cash will be put in the state's Rainy Day Fund.

Policymakers cautioned against using the new figures to draw conclusions about future budgets.

Sen. David Brinkley, a Republican on the Senate Budget and Taxation Committee, said, "I love to hear that we are in the black." But he added that it was "unfortunate" that most of the money was already committed to the current budget cycle.

"Maryland families are still feeling the crunch," Brinkley said. "We have to be vigilant about being sure the private sector can succeed."

O'Malley cautioned that there still are "tough choices" ahead for Marylanders — in the best-case scenario, he said, the larger-than-expected revenues turn next year's $1 billion projected deficit into a $700 million gap.

That means new taxes and more cuts are still on the table for next year's legislative session. O'Malley recently ruled out the possibility of raising taxes when the General Assembly meets in special session next month to vote on a new congressional redistricting plan, but said that increases are in play for the regular session to begin in January.

The governor likened the state getting the good budget news Thursday to a family enjoying a good financial stretch.

"You are grateful for the good month or two," he said. "But you know you have bills to pay for the year ahead."

O'Malley also cautioned that the federal government could still take a whack at the state's budget when the congressional panel on deficit reduction makes its recommendations.

Maryland's budget relies on roughly $9 billion from the federal government, some of which could be in jeopardy. Rep. Chris Van Hollen, a Montgomery County Democrat, is a member of the 12-person committee.

In a letter to O'Malley, state Budget and Management Director T. Eloise Foster said that it is unclear whether the increased tax receipts would continue, given "the current uncertainties in the national economy."

Comptroller Peter Franchot said that "events of recent months serve as a sobering reminder that we must maintain a cautious fiscal course. "Given the magnitude of the fiscal and economic challenges that lay ahead, both for our state and for the country, I firmly believe that this fund balance must be saved and not spent," he said.

The data showed that revenue from personal income taxes was 4.8 percent higher than expected, earning the state an extra $304 million. State agencies also spent slightly less than expected, saving $24 million.

State law requires most extra money to go into the Rainy Day Fund, a reserve for unexpected catastrophes. About $50 million must go to repay Program Open Space, a land purchasing program that O'Malley has raided in recent years to balance the budget.

Not all signs from the closeout reports were positive. Tax collection figures showed that state sales tax and corporate income tax revenues came in lower than expected.

"They are either buying less or they are buying somewhere else," said Brinkley.

Sales tax collections from consumers grew by 4.5 percent but were $35 million below expectations, according to a letter from the comptroller's office. State tax analysts attributed the missed mark to "low consumer confidence, high gas prices, and continued declines in home values."

Lottery revenues were up, though the Pick 4 games netted about $6.5 million less than had been forecast. The reason, according to state analysts: "The prize payout remained higher than statistically expected."

Neighboring Virginia also recently announced a budget surplus — though not as large as Maryland's. The Old Dominion state ended the year with $544 million in unspent money, about $234 million more than expected, according toThe Washington Post.

Gov. Bob McDonnell, a Republican, held a news conference to announce the extra funds, and the Republican Party of Virginia pointed to the surplus as proof that he manages his state's books more prudently than O'Malley, who is a Democrat.

Maryland's FY2011 books had not yet closed, and Virginia budget officials do not provide future year projections — making it impossible to gauge their long-term budget outlook.

O'Malley alluded to the different approaches Thursday, saying that he would "love to have a press conference and tell you with a straight face it is a surplus," but "that is not the way we do things on this side of the Potomac."